Economic development of Ukraine: Part 1. Agriculture of Ukraine

Economic development of Ukraine: Part 1. Agriculture of Ukraine

The increasing interdependence of national economies is a dominant trend in today’s world. It promotes international economic integration and fosters competition. As such, Ukraine has a need to address the issue of effective integration into the world economy.

According to the Global Competitiveness Report 2014-2015 published by the World Economic Forum, Ukraine ranks 76th in the global competitiveness rating. Ukraine suffers from corruption, political instability and lack of access to financing.

Many experts note that Ukraine has a great economic potential, but it has not been fully exploited.

For reference: Ukraine is the largest country of Europe; the population currently stands at over 45 million. The country has a great productive capacity. The share of industry in the GDP is 50%, agriculture accounts for 23%, 16% – transportation and communications, 3% – construction and 8% – others.

Let’s focus on the sectors of Ukrainian economy which can enhance competitiveness of Ukraine on the world market.

Part 1. Agriculture of Ukraine

Agriculture is the fastest-growing sector of the Ukrainian economy. Foreign companies show a lot of interest in agricultural lands of Ukraine. US agri-businesses companies have been conducting their business in Ukraine for several years. Among them there are the world’s agribusiness giants, Monsanto, Cargill and DuPont chemical company.

For reference: Ukraine is known as the region’s breadbasket thanks to its black “chernozem” soil. The chernozems of central Ukraine, among the most fertile soils in the world, occupy about two-thirds of the country’s area.

Ukraine has great prospects for agricultural development. During the Soviet era, Ukraine produced over 50 million tons of grain yearly. The share of agriculture in gross domestic product (GDP) of Ukraine accounted on average for 25 per cent, but in 2011 this indicator does not exceed 10 per cent. The agricultural production profitability was 40%, but now it does not exceed 2%. It may be summarized that industrial production in Ukraine has fallen to the 1960s level.

Let’s have a brief look at the main reasons of decline in Ukrainian agriculture. They are the following:

Inadequate and worn-out equipment of agricultural enterprises. It causes low labour productivity. Agricultural labour productivity in Ukraine is three times lower than in Poland.

Worsening of the demographic situation in rural areas. At the present stage, there is a process of ageing of agricultural population.

Lack of market infrastructure and weak consumer cooperation make it impossible to sell a large part of agricultural products.

Most of the black soils had been depleted through years of unsustainable land use and lost its productivity.

The low levels of the state budget allocated to agriculture and difficulties in the development of cooperation with domestic and foreign investors.

Development of innovative technologies is a good solution. According to experts, Ukraine can reduce natural gas consumption by processing biomass as a source of alternative energy.

Ukrainian producers should use modern technologies to increase labor productivity, for example, precision agriculture.

Of course, Ukrainian agriculture needs state assistance. First, space infrastructure should be used for agricultural purposes. Secondly, mechanism to attract investments should be developed. Israel’s expertise may be helpful.

The Israeli Government established a state fund aimed at promoting innovations. The entrepreneurs who wanted to engage in innovation, received funding from the state. In case of failure of innovation, the received sums should not have been returned to the state fund.

Agricultural development would facilitate the development of other sectors of Ukrainian economy, first of all mechanical engineering and construction.

Agricultural sector development bodes well for the production of fertilizers.

An encouraging example was Denmark, which developed as agricultural country, but then other sectors of economy developed on the base of agriculture.